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Tuesday, November 29, 2011

Big Labor Drags American Airlines into Bankruptcy

American Airlines announced today that it has filed for Chapter 11 bankruptcy protection, making it the final large U.S. full-fare airline to seek court protection from creditors. One of the primary reasons? American is at a disadvantage because of high labor costs, proving that in a competitive economy, unions can’t do much for their members without sending companies into bankruptcy.

American had struggled after 9/11 to avoid heading to bankruptcy as its rivals did in the hopes of securing favorable contract agreements with labor unions. The unions though, had other ideas. Among their demands: Pilots wanted a 10 percent signing bonus followed by 7 percent raises in each of the next three years–massive raises in the midst of a miserable economy.

Meanwhile, Delta, United, and US Airways are all operating with huge concessions on wages, benefits and work rules for pilots, flight attendants, mechanics and ground workers won through bankruptcy proceedings, as The Wall Street Journalreports.

In the most recent negotiations, American offered job protection, signing bonuses, and pay raises to the tune of a 3.21 percent raise in the first year—taken as a lump sum, a structural rate increase, or a combination—followed by three annual boosts of 1 percent each. In turn, American asked for changes to pension benefits and increased productivity. But that wasn’t enough. As Bloomberg reports, union negotiators sought not to help keep the company afloat but to win back earlier concessions:

American was embroiled in negotiations with unions for all of its major work groups as far back as 2006, seeking to boost employee productivity and erase part of what it said was an $800 million labor-cost disadvantage to other carriers.

The airline’s pilots, flight attendants, mechanics and baggage handlers wanted to use the contract talks to regain some of the $1.6 billion in annual concessions they gave in 2003 to help the company avoid bankruptcy.